financial accounting chapter 2
In a vertical analysis, which of the following accounts is most likely to represent 100 percent? a.Fees Earned b.Supplies Expense c.Rent Expense d.Wages Expense
a
Which of these does NOT represent a decrease in net cash received on an employee's paycheck? a.gross wages b.Medicare taxes c.social security taxes d.federal withholding taxes
a
Which of the following types of business entities is owned by one individual? a.Corporation b.Partnership c.Proprietorship d.Limited liability company (LLC)
c
Which of the following accounts is not a liability account? a.Notes Payable b.Accounts Payable c.Wages Payable d.Fees Earned
d
All of the following accounts have normal debit balances EXCEPT a.Cash. b.Wages Expense. c.Common Stock. d.Accounts Receivable.
C
1. Which is listed first on a financial statement? a.revenues b.owner's equity c.liabilities d.assets
D
1. A claim against a customer is known as a.an account receivable. b.an account payable. c.an expense. d.revenue.
a
3. If a player is released before his contract is done, the unamortized balance that remains a.immediately becomes an expense. b.is paid to the player as severance. c.is collected from the player. d.none of these.
a
A company has accrued wages for December 28-31 of $500. On December 31, the company records an adjusting entry that debits Wages Expense for $500 and credits Wages Payable for $500. Which of the following would be the correct reversing entry that would be entered on January 1? a.Wages Payable, $500 debit; Wages Expense, $500 credit b.Wages Expense, $500 debit; Wages Payable, $500 credit c.Cash, $500 debit; Wages Expense, $500 credit d.Wages Payable, $500 debit; Cash, $500 credit
a
All of the following accounts have normal credit balances EXCEPT a.Cash. b.Accounts Payable. c.Retained Earnings. d.Wages Payable.
a
How is gross profit for a merchandise business determined? a.sales minus cost of goods sold b.gross profit minus operating income c.sales revenue plus depreciation expense d.operating income plus sales
a
Jones Co. returned merchandise purchased from Smith Co. Under the perpetual inventory system, the journal entry to record the return of merchandise by Jones would be a.debit Accounts Payable—Jones Co., credit Inventory. b.debit Accounts Receivable—Jones Co., credit Inventory. c.debit Purchases Returns and Allowances, credit Inventory. d.debit Inventory, credit Accounts Payable—Jones Co.
a
Net income for Year 1 was $75,000, and net income for Year 2 was $90,000. What is the percent of increase or decrease in horizontal analysis? a.20% increase b.20% decrease c.17% increase d.17% decrease
a
On November 21, Civic Company received $550 from customers in payment of their accounts. The journal entry to record this transaction would include a.a debit to Cash. b.a debit to Accounts Receivable. c.a credit to Accounts Payable. d.a credit to Cash.
a
On the work sheet, the cash balance in the Adjusted Trial Balance Debit column will flow into the a.balance sheet. b.statement of stockholders' equity. c.income statement. d.balance sheet and income statement.
a
Revenue accounts appear on a.the income statement. b.the balance sheet. c.the statement of stockholder's equity. d.the statement of cash flows.
a
Supplies had a beginning balance of $4,000. A physical count at the end of the accounting period revealed $2,500 supplies on hand. What adjustment amount will appear for Supplies in the Adjustments section of the end-of-period spreadsheet? $1,500 credit $6,500 credit $2,500 debit $1,500 debit
a
The financial statement that reports the revenues and expenses for a period of time is known as the a.income statement. b.statement of stockholders' equity. c.balance sheet. d.statement of cash flows.
a
The following amounts were taken from a company's balance sheet: Total assets$100,000Total liabilities20,000Total stockholders' equity80,000Current assets10,000Current liabilities5,000 The company's working capital is a.$5,000. b.$10,000. c.$20,000. d.$80,000.
a
The last step of the accounting cycle is to a.prepare a post-closing trial balance. b.prepare an adjusted trial balance. c.prepare financial statements. d.journalize the post-closing entries.
a
The rights or claims to a company's assets that creditors have are called a.liabilities. b.equity. c.assets. d.stockholders' equity.
a
When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called a.the cost of goods sold. b.inventory expense. c.sales expense. d.depreciation expense.
a
Which of the following accounts does NOT have a contra asset account associated with it? a.Land b.Buildings c.Store Equipment d.Office Equipment
a
Which of the following accounts will NOT appear on the post-closing trial balance? a.Fees Earned b.Cash c.Accounts Receivable d.Accounts Payable
a
Which of the following is the correct order in which the financial statements should be prepared? a.Income statement, statement of stockholders' equity, balance sheet, statement of cash flows b.Statement of stockholders' equity, statement of cash flows, income statement, balance sheet c.Balance sheet, income statement, statement of stockholders' equity, statement of cash flows d.Statement of cash flows, income statement, balance sheet, statement of stockholders' equity
a
Which state does not have a sales tax? a.Oregon b.Washington state c.Tennessee d.Illinois
a
Why should investors and others be careful in interpreting partial-year reports for companies that use the natural business year for their fiscal year? a.The operations of the companies vary significantly throughout the fiscal year. b.Partial-year reports show only the highest points of a business. c.Partial-year reports show only the lowest points of a business. d.These reports are not used for the fiscal year reports.
a
efferson Cleaning signed an agreement with Willis Company on December 15 to provide cleaning services every Friday. The services will be billed to Willis Company on the fifteenth of each month at a rate of $15 per hour. As of December 31, Jefferson Cleaning had provided 15 hours of cleaning services to Willis Company. Which of the following is the required adjusting entry that Jefferson Cleaning should make on December 31? a.Debit Accounts Receivable, $225; credit Fees Earned, $225 b.Debit Fees Earned, $225; credit Accounts Receivable, $225 c.Debit Accounts Payable, $225; credit Fees Earned, $225 d.Debit Fees Earned, $225; credit Accounts Payable, $225
a
he following data were taken from Stanton Company's balance sheet: Dec. 31, Year 2Dec. 31, Year 1Total liabilities$110,000$105,000Total stockholders' equity90,00065,000 What are the ratios of liabilities to stockholders' equity for Year 2 and Year 1? a.1.22, 1.62 b.0.95, 0.72 c.0.82, 0.61 d.1.05, 1.38
a
inventory shrinkage is recorded by which of the following adjusting entries? a.Debit Cost of Goods Sold, credit Inventory b.Debit Inventory, credit Cost of Goods Sold c.Debit Inventory, credit Inventory Shrinkage d.Debit Inventory Shrinkage, credit Inventory
a
why are liabilities usually shown before owner's equity in the accounting equation? a.creditors have the first right to assets b.owners have the first right to assets c.creditors are responsible for liabilities d.owners have the first right to liabilities
a
1. The area of accounting that provides external users with information is called a.managerial accounting. b.financial accounting. c.tax accounting. d.natural accounting.
b
1. Which explains why the adjusting process is necessary? a.To allow businesses to show a greater profit. b.Ongoing business activity brings changes in account balances that haven't been captured. c.To provide work for accountants. d.Businesses pay taxes at a different rate than private citizens do.
b
1. Which of the following skills do accountants need? a.Accountants need to be skilled speakers. b.Accountants need to be critical thinkers with good decision-making skills. c.Accountants need to have experience in all functions of business. d.Accountants need the skills of Certificated Public Bookkeepers.
b
2. Southern Airways maintained a receivable existed for the $2 million because it a.needed the balance sheet to look good for investors. b.maintained it could collect the $2 million from the Cuban c.government. d.believed the U.S. government would pay the ransom. returned to the U.S. with the ransom money.
b
2. Which is the accounting equation? a.liabilities plus assets equal owner's equity b.assets equal liabilities plus owner's equity c.assets minus liabilities equal owners' equity d.owner's equity minus assets equal liability
b
A company's accounting records reveal that Supplies had a beginning balance of $1,000. During the accounting period, the company purchased $500 of supplies. A physical count at the end of the accounting period confirmed that $1,400 of supplies were used. What will be the balance of the supplies account on the adjusted trial balance? a.$1,500 b.$100 c.$1,400 d.$500
b
Assets for Lincoln Company totaled $13,000, liabilities totaled $1,000, and stockholders' equity totaled $12,000. What is the ratio of liabilities to stockholders' equity? a.0.0833 b.1.0833 c.12.00 d.13.00
b
Assume the following data concerning a purchase of merchandise by Icon Co. on April 2: April 2.Purchased $4,000 of merchandise on account from Gamma Co., terms 2/10, n/30.4.Returned $2,000 of the merchandise purchased on April 2.12.Paid for the purchase of April 2 less the return and discount. The purchase amount that Icon Co. would record on April 2 would be a.$3,200. b.$3,920. c.$4,000. d.$3,290.
b
Comparing each item on a financial statement with a total amount from the same statement is referred to as a.horizontal analysis. b.vertical analysis. c.revenue recognition. d.None of these choices are correct.
b
During the accounting period, Cash was debited for $4,000, $3,000, and $1,000. Cash was also credited for $3,000, $500, and $100. The beginning balance of Cash was a $10,000 debit. What is the ending balance of Cash on the post-closing trial balance? a.$21,600 debit b.$14,400 debit c.$21,600 credit d.$14,400 credit
b
Equity is called owner's equity in all of the following forms of business entities EXCEPT a.proprietorships. b.corporations. c.limited liability companies (LLCs). d.partnerships.
b
Fees earned for Year 1 were $90,000 and for Year 2 were $40,000. What is the percent of increase or decrease in horizontal analysis? a.125% increase b.55.6% decrease c.44.4% increase d.None of these choices are correct.
b
If the bank debits your account, the account balance will a.increase b.decrease c.stay the same d.double
b
Increases in stockholders' equity as a result of selling services or products to customers are known as a.expenses. b.revenues. c.assets. d liabilities.
b
On December 15, Zapp Company paid $1,900 to Sylvan Supply Co. on account. The journal entry to record this transaction would include a __________ to __________. a.debit; Cash b.credit; Cash c.credit; Accounts Payable d.credit; Accounts Receivable
b
On March 15, Civic Company paid its employees for two weeks' wages. This transaction will have which of the following impacts on the accounting equation? a.Assets will increase and liabilities will decrease. b.Assets will decrease and stockholders' equity will increase. c.Assets will increase and liabilities will increase. d.Assets will decrease and stockholders' equity will decrease.
b
On the work sheet, the Dividends balance in the Adjusted Trial Balance Debit column will flow into the a.balance sheet. b.statement of stockholders' equity. c.income statement. d.balance sheet and statement of stockholders' equity.
b
The adjusting entry for accrued revenues a.debits a revenue account and credits an asset account. b.debits an asset account and credits a revenue account. c.debits a revenue account and credits a liability account. d.debits a liability account and credits a revenue account.
b
The financial statement that reports the changes in the retained earnings and common stock for a period of time is known as the a.income statement. b.statement of stockholders' equity. c.balance sheet. d.statement of cash flows.
b
The following amounts were taken from a company's balance sheet: Total assets$100,000Total liabilities20,000Total stockholders' equity80,000Current assets10,000Current liabilities5,000 The company's current ratio is a.5.0. b.2.0. c.0.5. d.20.
b
The journal entry required to close the dividends account includes a.a debit to Common Stock and a credit to Dividends. b.a debit to Retained Earnings and a credit to Dividends. c.a debit to Retained Earnings and a credit to Cash. d.a credit to Common Stock and a debit to Retained Earnings.
b
The process of transferring the debits and credits from the journal entries to the accounts in the ledger is called a.recording. b.posting. c.journalizing. d.double-entry accounting.
b
Which of the following accounts is NOT an asset account? a.Cash b.Accounts Payable c.Building d.Equipment
b
Which of the following businesses would be most likely to use the accrual basis of accounting? a.Real estate agent b.Grocery store c.Physician d.Attorney
b
Which of the following shows the correct order of events? a.Unadjusted trial balance, adjusting entries, financial statements, adjusted trial balance b.Unadjusted trial balance, adjusting entries, adjusted trial balance, financial statements c.Financial statements, unadjusted trial balance, adjusting entries, adjusted trial balance d.Financial statements, adjusted trial balance, unadjusted trial balance, adjusting entries
b
Which of the following statements about reversing entries is not true? a.A reversing entry is the exact opposite of the adjusting entry to which it relates. b.Reversing entries are recorded prior to the closing entries for the period. c.Reversing entries are recorded on the first day of a subsequent accounting period. d.The use of reversing entries is optional.
b
Which organization has the authority over the accounting and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public? a.FASB b.SEC c.IASB d.GAAP
b
You will not pay sales tax on merchandise you purchase on the Internet if a.You are not a resident of the state where the vendor is. b.The vendor ships merchandise to a customer in a state where the company does not have a physical location. c.Both you and the vendor are in the same state. d.The vendor is shipping from a physical location in a state where sales tax is charged.
b
1. What do salary caps used by sports leagues limit? a.the amount the league can pay a single payer each year b.the total amount the league can pay new players each year c.the total salaries a league can pay each year d.the total salaries a league can pay over a six-year period
c
A business's yearly accounting period is called the a.financial year-end. b.accountant's annual budget. c.fiscal year. d.yearly balance sheet.
c
All of the following accounts will appear on the post-closing trial balance EXCEPT a.accounts payable. b.accounts receivable. c.depreciation expense. d.cash.
c
Asset accounts and liability accounts are increased by __________ and __________, respectively. a.debits; debits b.credits; credits c.debits; credits d.credits; debits
c
Burr Publishers purchased a building on March 20, 20Y1, for $160,000. Other amounts related to this purchase are as follows: Price listed by seller on January 1, 20Y1$180,000Burr Publishers' initial offer to buy on January 31, 20Y1$140,000Purchase price on March 20, 20Y1$160,000Estimated resale price on December 31, 20Y3$220,000Assessed value for property taxes, December 31, 20Y3$190,000 Which of the following amounts should be recorded by Burr in the accounting records related to this purchase? a.$220,000 b.$180,000 c.$160,000 d.$140,000
c
If depreciation is not adjusted, which of the following would occur? a.Assets and expenses would be overstated. b.Assets and expenses would be understated. c.Net income would be overstated, and expenses would be understated. d.Net income would be understated, and stockholders' equity would be overstated.
c
On December 31, Evans Electronics owes $350 of wages to its employees. If the amount for the $350 of wages owed is not recorded, which of the following will occur on Evans's financial statements? a.Expenses and net income will be understated by $350. b.Liabilities and net income will be understated by $350. c.Expenses will be understated and stockholders' equity will be overstated by $350. d.Liabilities will be overstated and stockholders' equity will be understated by $350.
c
On July 20, Rich Company sold merchandise to York Associates on account, terms FOB destination. Rich Company would record the freight cost as a __________ to __________. a.debit; Inventory b.credit; Inventory c.debit; Delivery Expense d.credit; Delivery Expense
c
On May 21, Civic Company paid dividends of $1,000 to the shareholders. The journal entry to record this transaction would include a debit to a.Cash. b.Common Stock. c.Dividends. d.Retained Earnings.
c
Prior to recording adjusting entries, the office supplies account had a $360 debit balance. A count of the supplies showed $105 of unused supplies remaining. The required adjusting entry is a.debit Office Supplies, $105; credit Office Supplies Expense, $105. b.debit Office Supplies Expense, $105; credit Office Supplies, $105. c.debit Office Supplies Expense, $255; credit Office Supplies, $255. d.debit Office Supplies, $255; credit Office Supplies Expense, $255.
c
The cash in your account is an asset to you but a ______ to the bank. a.loan b.statement c.liability d.withdrawal
c
The liability for the sales tax is incurred when the a.sales contract is agreed on. b.merchandise arrives via the Internet sale. c.sale is made. d.loan is obtained.
c
The resources owned by a business are its a.liabilities. b.equity. c.assets. d.stockholders' equity.
c
When are the balances of temporary accounts set to zero? a.at the end of each week b.at the end of each pay period c.at the end of the year d.at the end of the employee's employment with the company
c
When the physical inventory on hand at the end of the accounting period is less than the balance of Inventory, the difference is known as a.merchandise available for sale. b.cost of goods sold. c.inventory shrinkage. d.allowance for inventory.
c
Which of the following is NOT a guideline of ethical conduct? Identify an ethical decision by using your personal ethical standards of honesty and fairness. a.Identify the consequences of the decision and its effect on others. b.Make a decision that is in the best interests of the company; other c.parties affected are not important. d.Consider your obligations and responsibilities to those who will be affected by your decision.
c
Which of the following is an example of a fixed asset? a.Supplies b.Accounts receivable c.Land d.Unearned fees
c
Which of the following is reported on both a multiple-step income statement and a single-step income statement? a.Gross profit b.Operating income c.Cost of goods sold d.Other revenue and expense
c
Which of the following is subtracted from gross profit to reach operating income? a.programming and production and expenses b.amortization expenses c.depreciation expenses d.selling, administrative revenue, and manufacturing costs
c
Which of the following steps would be done last when preparing a trial balance? a.List the name of the company, the title of the trial balance, and the date the trial balance is prepared. b.List the accounts from the ledger, and enter their debit or credit c.balance in the Debit or Credit column of the trial balance. Verify that the total of the Debit column equals the total of the Credit column. d.Total the Debit and Credit columns of the trial balance.
c
Year-to-date summaries on a paycheck stub are similar to the way a.expenses and revenues are transferred to an income summary. b.adjusting entries are recorded in the journal. c.income statement accounts accumulate revenues and expenses over a period. d.none of these.
c
1. A deposit into your account at the bank is recorded as a(n) a.expense b.debit c.liability d.credit
d
1. If the supplies account is not adjusted, which of the following would occur? a.Assets and expenses would be overstated. b.Assets and expenses would be understated. c.Assets would be understated, and expenses would be overstated. d.Net income and stockholders' equity would be overstated.
d
2. Under the salary cap rules, the signing bonus covers a.the first year the player completes. b.the first two years the player completes. c.the first three years the player completes. d.the length of the player's contract.
d
4. GAAP treats the bonus as a prepaid salary expense which a.immediately becomes an expense. b.is amortized over the first two years the player completes. c.is amortized over the first three years the player completes. d.is amortized over the life of the contract.
d
All of the following accounts/account types are closed at the end of the accounting period EXCEPT a.Revenues. b.Expenses. c.Dividends. d.Retained Earnings.
d
For a service business, which of the following would NOT be a line item on the income statement? a.Operating income b.Fees earned c.Operating expenses d.Gross profit
d
If an accrual is for an expense, the adjusting entry debits an __________ account and credits a(n) __________ account. a.asset; revenue b.unearned revenue; revenue c.expense; asset d.expense; liability
d
Items such as supplies that will be used in the business in the future are called a.accounts receivable. b.accounts payable. c.expenses. d.prepaid expenses.
d
On the end-of-period spreadsheet, which of the following accounts would not be extended to the Balance Sheet columns? a.Accounts Receivable b.Common Stock c.Accumulated Depreciation d.Fees Earned
d
Purchasing supplies on account __________ a(n) __________ account. a.decreases; asset b.increases; revenue c.decreases; expense d.increases; liability
d
Revenue accounts and expense accounts are increased by __________ and __________, respectively. a.debits; debits b.credits; credits c.debits; credits d.credits; debits
d
The adjusting process is applied at Microsoft a.to show appreciation expenses. b.to provide their accountants with work the company has already allocated funds for. c.because the company has different financial records for different products. d.because not all of the revenue from a sale is earned on the date of sale.
d
The first step of the accounting cycle is to a.post transactions to the ledger. b.prepare an unadjusted trial balance. c.assemble and analyze adjustment data. d.analyze transactions and record them in the journal.
d
Which businesses use an accounting equation? a.large corporations b.mom and pop businesses c.businesses that have less than 200 employees d.all businesses, from the largest to the smallest
d
Which of the following describes how a merchandise income statement is different from a service income statement? a.The revenue from a merchandise business is reported as fees earned. b.The program and production expenses are subtracted from gross profit to arrive at operating income. c.Depreciation and amortization expenses are added to the cost of goods sold. d.A merchandise business shows a gross profit line.
d
Which of the following financial statements is not normally prepared directly from the end-of-period spreadsheet? a.Income statement b.Balance sheet c.Retained earnings statement d.Statement of Cash Flows
d
Which of the following items are not considered "other revenue" on the multiple-step income statement? a.interest income b.rent revenue c.gains resulting from the sale of fixed assets d.fees earned
d
Which of the following statements about adjusting entries is NOT true? a.Adjusting entries should be dated as of the last day of the accounting period. b.An explanation is normally included with each adjusting entry. c.After adjusting entries are made in the journal, they are posted to the ledger. d.Adjusting entries are typically recorded on the last day of the accounting period.
d
Why do companies base their fiscal year on a natural business cycle? a.It provides greater tax advantages. b.It's the time of highest sales volume, and thus provides greater advantage to investors. c.Accountants want to close their books at the end of the year. d.It's at the low point in the operating cycle and provides time to analyze operations and prepare financial statements.
d
Which of the following is NOT a common subsidiary ledger? a.Inventory subsidiary ledger b.Accounts payable subsidiary ledger c.Accounts receivable subsidiary ledger d.Cost of goods sold subsidiary ledger
d.